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Operational performance in-line; Miss on P&L due to lower recognition

Steady (in-line) operating performance despite unfavorable seasonality

* Macrotech Developers (LODHA) reported sales bookings of INR35.3b, which grew 12% YoY/5% QoQ in 2QFY24. Sales stood in-line with our estimates. With pre-sales of INR69b in 1HFY24 (up 15% YoY), the company has already achieved ~50% of the pre-sales guidance and is on track to surpass its FY24 guidance of INR145b.

* Sales volume jumped 24% YoY but dipped 7% QoQ due to seasonality and limited new project launches. LODHA launched 1.8msf of area across five existing projects. It is aiming to launch projects in seven new locations in 2HFY24, including its first project in Bengaluru that will drive pre-sales growth.

* Higher contribution from South and Central Mumbai led to 16% QoQ growth in realization to INR13,300/sqft, which resulted in 8% QoQ jump in residential pre-sales to INR34.5b (up 20% YoY) during the quarter.

* P&L performance: Revenue was flat YoY at INR17.5b in 2QFY24, 31% below our estimate led by lower recognition despite the transition to POC method of accounting. EBITDA came in at INR4.2b, flat YoY but 38% below our estimate. EBITDA margin stood at 24%. Adjusted margin was up 170bp to 31%. Adjusted PAT declined 42% YoY to INR2.1b; PAT margin was at 12%.

Net debt reduced by over INR5b; on track to achieve its full-year target

* Gross collections recovered and were up 16% YoY at INR27.5b, which led to a 24% YoY rise in OCF to INR12.6b. Lower spending on land and investments led to a surplus of INR5.4b that was utilized for debt reduction.

* Net debt now stands at INR67.3b, or 0.52x of equity. With a significant debt reduction plan in 2HFY24, LODHA remains on track to achieve its full-year leverage target of below 0.5x of equity or 1.0x of OCF.

* LODHA added two projects during the quarter with a saleable area of 1.2msf and a GDV potential of INR23b. With these, it has cumulatively added INR143b of projects which is >80% of its full-year target of INR175b.

Key conference call highlights

* New launches: LODHA is aiming to commence sales at its new Bengaluru project in Nov’23. Similar to Pune, its initial years will be spent on understanding the local market/building the brand, and then building on it in a sustainable manner.

* Overall, LODHA intends to have 7-8 new launches with a development potential of 8msf and GDV of INR120b in 2HFY24.

* Management is confident of achieving 20% CAGR in pre-sales over the next few years.

* Pricing: Growth in price has been 3% in FY24YTD, which is in line with the company’s strategy to maintain price growth below wage growth. This is a critical factor in ensuring the longevity of the current upcycle.

* Eastern Suburbs: Having entered the market in 2HFY22, LODHA achieved sales of INR12b in FY23 and in FY24 it is aiming for 40-50% growth that translates into INR17-18b (1HFY24 – INR8b) of sales. The goal is to increase market share to 20% and LODHA will add 2-3 new projects each year in order to achieve its targeted growth/market share.

Valuation & view: Debt reduction on track; focus intensifies on growth

* LODHA delivered in-line operating performance and remains on track to exceed its FY24 pre-sales guidance of INR145b. Hence, we maintain our pre-sales and cash flow estimates.

* LODHA reported lower-than-estimated revenue/EBITDA/PAT due to lower-thanexpected recognition. We revise our FY24E EBITDA/PAT by -13%/-21%.

* The company reduced its debt significantly in 2QFY24 and remains on track to further reduce it by INR15-20b to

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